Nov. 12 (Bloomberg) -- Macquarie Group Ltd. and the local
host of the “The Apprentice” are teaming up to crack into
Australia’s A$1.1 trillion ($1.15 trillion) mortgage lending
oligopoly.

Starting next year, the country’s biggest investment bank
will fund loans via Yellow Brick Road Holdings Ltd., whose
chairman Mark Bouris hosts the television show made famous in
the U.S. by Donald Trump. YBR will offer a 1.15 percentage point
discount off its base rate for the first 12 months, undercutting
the average 0.75 reduction offered by banks. The four biggest
banks control more than three of every four home loans.

“Money is not a designer commodity, money’s money, and you
want it for the cheapest possible price,” said Bouris, who in
2004 sold his Wizard Mortgage Corp. to General Electric Co. in a
deal worth about $300 million. “The moment someone’s come in
with a new price it’s upset the oligopoly, and people are coming
to us in hordes to refinance.”

Macquarie is aiming to revive its return on equity, which
has slumped to 6.6 percent from 23.7 percent in its 2008
financial year, and is seeking more stable sources of cash flow
from leasing aircraft, managing funds and providing loans. YBR
will bid to lure new borrowers even as annual home-loan growth
slows to the weakest pace since records began in 1977, and
snatch some of the A$960 billion in loans already extended by
the nation’s four main banks.

YBR’s loan rate is about 30 basis points below the average
discounted rates available at Australia & New Zealand Banking
Group Ltd., Commonwealth Bank of Australia, National Australia
Bank Ltd. and Westpac Banking Corp., a big enough discount to
entice borrowers to switch, Bouris said.

Bouris is seeking another success in the industry that made
his fortune. He built Wizard into the nation’s biggest non-bank
home lender, with 200 branches and A$18.5 billion of mortgages,
when GE bought its parent company Australian Financial
Investments Group in 2004. Australian Financial was equally
owned by Bouris, Kerry Packer’s Publishing & Broadcasting Ltd.,
ABN Amro Holding NV and Deutsche Asset Management Australia.

GE sold Wizard’s mortgage book to Commonwealth Bank of
Australia and its branch network to Aussie Home Loans in 2008 as
the global credit freeze roiled markets.

YBR made an A$6.8 million loss on revenue of A$14.8 million
in the 12 months ended June 30, according to a regulatory
filing. It signed its 100th branch agreement in January.

While Bouris is aiming to get a 5 percent market share of
new loans and refinancings, he accepts it’s going to be tough,
as the four banks have shored up their dominance by buying
smaller rivals, and benefit from government guarantees on
deposits, Bouris said.

Pillar Profits

The so-called four pillar banks posted combined net income
of A$22.8 billion for their most recent financial years,
according to a report this month from PricewaterhouseCoopers
LLP. The lenders share 77.3 percent of the home loan market and
76.6 percent of business lending, the report states. They have a
combined market value of A$294 billion, according to data
compiled by Bloomberg, versus A$57.8 million for YBR.

“I wouldn’t call it a fifth pillar,” said TS Lim, a
Sydney-based banks analyst at Bell Potter Securities Ltd., who
said YBR’s move into mortgage lending is unlikely to hurt the
major lenders. “If anything, it may put a dent into the other
smaller players.”

Spare Billions

Macquarie has been looking for ways to deploy some of its
A$3.4 billion in surplus capital and will consider acquisitions
across all geographies, Chief Executive Officer Nicholas Moore
said in a telephone interview last month. It announced a A$500
million share buyback program in October 2011.

The company’s banking unit had already been beefing up its
mortgage business before the YBR deal, according to data from
the Australian Prudential Regulation Authority, which oversees
the nation’s banking industry. Macquarie Bank had A$4.5 billion
of housing loans to owner-occupiers and investors outstanding as
of Sept. 30, the most in APRA figures going back to 2002.

Macquarie spokeswoman Jessica Richards declined to comment.

The bank’s agreement with YBR comes as a rally in credit
markets drives interest rates on global financial debt to
historic lows. Such bonds yielded an average 2.69 percent on
Nov. 8, the least in records going back to 1997, according to a
Bank of America Merrill Lynch index.

“The fact that Yellow Brick Road and Macquarie are willing
to push the product indicates that funding markets have begun to
thaw quite significantly, and wholesale funding costs have
dropped enough to make the product economic,” said Jarrod
Martin, an analyst at Credit Suisse Group AG. “It’s a good
distribution channel for Macquarie.”

Increasing Deposits

The yield premium on Macquarie Bank’s $750 million of 3.45
percent notes due in July 2015 has tumbled to 165 basis points
more than Treasuries, from 320 when the bonds were sold in July,
according to Trace, the bond price reporting system of the
Financial Industry Regulatory Authority.

Macquarie increased deposits to A$36.2 billion at Sept. 30,
and has a “diverse and stable funding base,” it said in a
statement Oct 26. Macquarie Bank’s cash management accounts pay
interest that tracks the Reserve Bank benchmark rate, currently
at a three-year low of 3.25 percent, according to its website.

It’s also looking to increase lending as Australia’s
housing market stabilizes after a two-year slide. Home prices
rose for a second straight quarter in the three months to Sept.
30, the first back-to-back increase since 2010, led by gains in
the capitals of states at the center of the nation’s mining
boom.

Property Improvement

“Lower-than-average interest rates are providing some
support to demand in the economy,” Reserve Bank Deputy Governor
Philip Lowe said in an Oct. 30 speech in Sydney. “There is also
some sign that they have led to a slight improvement in the
property market, although there has been little change in the
appetite for debt.”

The annual pace of housing credit growth slowed to 4.7
percent in September, the least in records dating back to 1977,
central bank data shows. That’s down from about 12 percent when
Bouris founded Wizard in 1996.

Arrears of more than 30 days on loans underpinning
Australian prime mortgage-backed bonds were 1.5 percent in July,
according to Standard & Poor’s. The equivalent U.S. loan
delinquency rate was 7.6 percent at June 30, Bloomberg data
show.

“The Aussie mortgage market stacks up well compared to
offshore peers,” said Chris Viol, a Sydney-based credit analyst
at UBS AG. “Arrears are low, unemployment is low and the
housing market was relatively stable through the global
financial crisis, all driven by an outperforming economy.”